Educational Articles

The GMOs Strike Back: Act Two in the Raging Battle for Food Transparency

George M. Lee
| January 12, 2016

Genetically modified organisms (GMOs) have suffered some setbacks in recent years as businesses and consumers increasingly eschew these promising yet somewhat controversial products. However alternative non-GMO foods are not necessarily the clear-cut solution for this uncertainty. As world population levels continue to rise, technologies that can improve agriculture yields will become ever more important. Investors who are considering this long-term growth opportunity should not be too quick in writing off the role of GMOs over the long haul.

Round One Goes to the Anti-GMOs

The battle between big agriculture and sustainable organic farming has existed for decades. Like with many other technological breakthroughs, fear of the unknown has amplified people’s intrinsic reluctance for change. Despite a paucity of conclusive studies showing the harmful effects of GMOs, the anti-GMO movement has been increasingly successful in convincing consumers and businesses to err on the side of caution.

Unwilling to get caught on the losing side, some businesses have hedged their positions. A year ago, General Mills decided to remove all genetically modified ingredients from its original Cheerios product. Since then, however, little to no additional progress has been made to do the same for the rest of the cereal maker’s extensive product portfolio. The company has cited the complexity of ingredients used in its other products as the primary reason. Many of those ingredients are derived from corn or soy, which in the U.S. are primarily grown from GMO seedstocks. According to the June 2015 USDA NASS Agricultural Survey, 92% of corn and 94% of soy grown within the United States are biotech varieties.

However, sourcing from non-GMO farms is possible if sufficient economic incentives exist. Indeed, successful businesses, such as Ben & Jerry’s, Chipotle (CMG), and Trader Joe’s, have already or are in the process of phasing out all GMOs in their products. Even superstore retailers, such as Target (TGT), have pledged to make their in-house food products GMO-free. If demand for organically grown or non-GMO foods continues to increase, these companies may only represent the tip of the iceberg.

Winning with Transparency

Consumer preferences can be fickle, however, and dramatic changes in momentum are not unprecedented. Case in point, Chipotle, the first and most prominent major fast-food chain to go on record of claiming to be GMO-free, saw its stock price more than double from 2013-2014 as it inspired customers and investors with its promise of making “food with integrity.” To its credit, the company has been a leader in transparency with regards to its sourcing of ingredients. In 2015, rather than dealing with pork suppliers who did not meet its standards, it chose to absorb the losses from a self-imposed pork shortage. This goodwill, however, was not enough to stem the 40% drop in its stock price in the final quarter of the year, as reports surfaced about E. coli and norovirus outbreaks at its restaurants. Although these recent incidents are unlikely to be related to its use of non-GMO ingredients, the sheen around this banner carrier of the anti-GMO movement has been noticeably tarnished.

Conclusive evidence proving or disproving the harmful long-term effects to humans and the environment are still in limited supply, so many of the arguments on both sides are based heavily on propaganda. Corporate proponents of GMOs, however, have focused a sizable chunk of their resources on lobbying firms in order to win strategic legal battles that have preserved favorable operating conditions. Instead of educating and winning over new supporters, the use of these backroom deals has in many cases alienated consumers toward these companies and their products.

On the other side of the coin, supporters of the anti-GMO movement have cleverly made transparency a central pillar of their position. Companies such as Whole Foods (WFM) have pledged to provide full GMO labelling for all of its products. Unlike its adversaries, by showing that it has nothing to hide, this side has clearly been winning the war of popular opinion.

This phenomenon has not been specific to only first-world countries. Kenya, for example, is in the final stages of adopting genetically modified cotton seeds. Since 1985, cotton production in the country has fallen 70%, partly due to pests such as butterflies and moths. If passed, Monsanto’s (MON) Bollbard II cotton seeds, which have been genetically engineered to produce a toxin against these pests, would promise to reignite Kenya’s cotton industry and provide the country with a much needed catalyst for economic growth. Yet, even in this impoverished nation, civil societies and other members of the public have protested against its ratification on the grounds that the hidden costs may potentially outweigh any economic benefits.

Many companies recognize the shifting preference for so-called natural and sustainable crops. Even Monsanto, the leading agriscience giant, recognizes the uphill battle that it faces in seeds and genomics. To wit, Monsanto has been busy looking for ways to expand other areas of its business, such as agricultural consulting and agricultural productivity. This later segment includes its traditional chemicals business, where yet another deal to acquire Syngenta AG’s pesticide business is supposedly in the works.

Turning the Tide

The FDA recently gave its approval for sales of AquAdvantage salmon, a genetically modified fish that grows twice as fast as normal salmon in the wild. Despite rigorous FDA studies showing the safety of this fish, retailers such as Costco (COST), Kroger, Target, Trader Joe’s, and Whole Foods have already pledged not to sell it, undoubtedly in order to placate the concerns of their anti-GMO customers. This unfounded aversion to new technologies may ultimately prove shortsighted though, as innovation has been crucial in solving humanity’s problems throughout history.

As purveyors of GMO technologies consider their next steps, those who take a page from the other side and embrace transparency will likely find the path of least resistance. By doing so, fear and suspicion should subside a bit, and the current hostile climate against GMOs could give way to empirical studies and facts. Demand for higher-quality food will likely continue to rise, among both opponents and proponents of GMOs. As this occurs, businesses who operate in the GMO space can play a life-saving and lucrative role, but only if a change in approach occurs.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.